Mountain Valley Pipeline Startup Approval Leads to 2% Drop in U.S. Natural Gas Prices

(Reuters) — U.S. natural gas futures slid about 2% on Wednesday on expectations the startup of the Mountain Valley Pipeline will soon allow more cheap gas from the Appalachia shale basin to flow to markets.

Federal energy regulators approved the startup of the Mountain Valley Pipeline from West Virginia to Virginia late Tuesday.

Analysts expect the Mountain Valley startup will allow Appalachian producers to slowly boost output in coming months as other energy firms fix constraints on connecting pipes in Virginia and other states, allowing gas flows on Mountain Valley to reach the pipe's full 2-billion cubic feet per day (Bcf/d) capacity.

Front-month gas futures <NGc1> for July delivery on the New York Mercantile Exchange fell 6.6 cents, or 2.1%, to $3.063 per million British thermal units (mmBtu) at 9:54 a.m. EDT (1354 GMT). On Tuesday, the contract closed at its highest price since Jan. 12.

The futures price decline came despite an ongoing drop in output so far in June and forecasts for hotter weather through at least the end of the month that should boost the amount of gas power generators need to burn to keep air conditioners humming.

Other factors keeping a lid on futures prices this year include consistently lower spot prices at the U.S. Henry Hub benchmark <NG-W-HH-SNL> in Louisiana and the oversupply of gas in storage despite six weeks of smaller than usual storage builds.

Analysts said current gas stockpiles were still around 24% above normal levels for this time of year.

Supply and Demand

Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 97.7 Bcf/d so far in June, from 98.1 Bcf/d in May. That compares with a monthly record of 105.5 Bcf/d in December 2023.

On a daily basis, output was on track to drop by around 2.3 Bcf/d over the past five days to a preliminary 21-week low of 95.7 Bcf/d on Wednesday. Traders, however, noted preliminary data is often revised later in the day.

Before recent output declines in June, analysts said increases in May where a sign producers were slowly boosting output due to a 47% jump in futures prices in April and May. Output hit a six-week high of 99.5 Bcf/d on May 24.

Overall, U.S. gas production has remained down 8% so far in 2024 after several energy firms, including EQT and Chesapeake Energy, delayed well completions and cut drilling activities when prices fell in February and March.

EQT is the biggest U.S. gas producer and Chesapeake is on track to become the biggest producer after its merger with Southwestern Energy.

Meteorologists projected weather across the Lower 48 states would remain hotter than normal through at least June 27.

LSEG forecast gas demand in the Lower 48, including exports, would jump from 95.3 Bcf/d this week to 98.9 Bcf/d next week. The forecast for this week was higher than LSEG's outlook on Tuesday.

Gas flows to the seven big U.S. LNG export plants rose to 13.1 Bcf/d so far in June, from 12.9 Bcf/d in May.

That, however, remains well below the monthly record high of 14.7 Bcf/d in December 2023 due to ongoing maintenance at several plants, including Cheniere Energy's Sabine Pass, Venture Global's Calcasieu Pass and Cameron LNG's plant in Louisiana. Traders, however, noted that gas flows to Sabine and Cameron were on track to rise a bit on Wednesday.

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